Description
Management Study on the Utility of Narrative in Advancing the Management of Intellectual Capital:- Intellectual capital is the difference in value between tangible assets (physical and financial) and market value.[1][2] This contrasts with physical and financial forms of capital; all three make up the value of an enterprise.
Management Study on the Utility of Narrative in Advancing the Management of Intellectual Capital
ABSTRACT The use of narrative in the intellectual capital (IC) literature has been espoused as providing the rationalisation for organisations’ forays in to IC practice. This identified as a narrow view which prompts a fuller investigation of the utility of narrative in relation to IC. To argue this point, three case studies are summarised. Each offers a different analysis of the utility of narrative from an IC perspective. The first two cases take a structuralist view of IC in action. The first identifies that IC narrative offers the opportunity to understand the impact of IC over time. The second concludes that narrative extends beyond offering the ‘raison d’être’ and becomes the ‘modus operandi’. The third case uses narrative in an interpretive approach to understanding the complex interactions between IC elements and value creation. The overarching conclusion of the paper is to identify how narrative allows insights into IC in action in a way that numbers alone cannot.
INTRODUCTION The use of narrative in the measurement, management and reporting of intellectual capital (IC) reports is well established. Both the Meritum guidelines (Meritum Project, 2002) and the Danish IC reporting guidelines (Mouritsen et al., 2001b; Mouritsen et al., 2003) have established the use of narrative as an important element of this process and many organisations, both public and private, have utilised narrative in this regard (Systematic, 2002; 2004; NSW Department of Lands, 2005; 2006; Dumay and Guthrie, 2007). As Mouritsen et al. (2002, p. 14) explain, this use of narrative adds to the reasoning behind an organisation’s management and subsequent disclosure of IC. So here narrative is seen to be giving meaningful reasoning of why and how an organisation is concerned with managing its IC in addition to disclosing its IC measures. Narrative utilised in this way helps in understanding organisations’ actions in relation to IC management, measurement and reporting and as a basis for explicating IC from the perspective of the organisation’s actors who constructed the narrative. Narrative is also the main differentiating feature of supplemental and comprehensive documents which contrast the simple, one-page, accounting-style reports (Society for Knowledge Economics, 2005; Sveiby, 2007) based solely on measures of the elements of IC which dominated IC literature and practice in the 1990’s (Sveiby, 2007). Thus, narrative can be viewed as an additional tool that has been used to further advance IC in both the academic literature and in practice. But the espoused use of narrative solely as an explanation of the reasons behind an organisation’s management of IC it is seen as too narrow. This is because narrative has been identified as not only allowing for organisations to explain their actions, but it can also be used to “reveal the individual, human projects within organizations and… construct and identify emerging organizational strategies” (Llewellyn, 1999, p. 233). Additionally narrative can be used to represent communicative interactions that create social reality offering greater involvement of organisational actors (Weick and Browning, 1986). This expanded view of the usefulness of narrative leads to the purpose of this paper, which is to explore the further utility that narrative can have in advancing the management of IC beyond just ‘reason’. To achieve this aim this paper is presented in three further sections. First a brief history of the development of frameworks for the management, measurement and reporting of IC is offered, identifying how the use of narrative came about. Second, evidence from three organisations is discussed to exemplify the different uses of narrative in the management, measurement and reporting of IC. Third, a conclusion summarises the findings of the cases presented in this paper and outlines some implications for further research. NARRATIVE IN IC MEASUREMENT, MANAGEMENT AND REPORTING The measurement, management and reporting IC have become prominent, especially in Europe and more specifically in the Scandinavian countries, over the past two decades. But the recognition of IC or intangibles has been considered an important concept for business in the past and not just in the so called ‘knowledge economy’. A prominent economist at the turn of the 20th century, Professor Thorstein Veblen (1904, p. 154) was also cognisant of the process of value creation in that he identified that all of the capital employed in a business has an element of intangibility. He is quoted as saying: “All capital … is subjected to an interminable process of valuation and revaluation … on the basis of its presumptive earningcapacity, whereby it all assumes more or less of a character of intangibility.” So if business
2
has been aware of the value of intangible assets how have they measured and reported on it in the past? Ordóñez de Pablos (2002) identifies that the management of IC is the combination of business elements that were managed separately before. These elements include human resource management, organizational development, change management, information technology, brand and reputation management, performance management and valuation. Thus, organizations have been measuring and managing these elements for many years but not necessarily under the banner of IC. In the 1990’s authors and practitioners such as Stewart (1997), began using terms ‘intellectual capital’ and ‘intangible assets’, often synonymously; and began to provide frameworks for the measurement, management and reporting of IC. One of the more prominent of these frameworks was Sveiby’s (1997) framework entitled the ‘Intangible Assets Monitor’ which was in part influenced by the ‘Balanced Scorecard’ as developed by Kaplan and Norton (1992) which had already begun to gain prominence in the USA. In the mid 1990’s the Scandinavian insurance company, Skandia, combined the principles of the ‘Intangible Assets Monitor’ and the ‘Balanced Scorecard’ to develop the ‘Skandia Navigator’. Skandia used the Navigator framework and began to report externally on IC by way of an IC report which was a supplement to their annual financial report (Skandia, 1994; 1995; 1996; 1998; Mouritsen et al., 2001a). This work has continued into the 21st century and led to a proliferation of frameworks for the measurement, management and reporting of IC and intangible assets. Sveiby (2007) identifies 34 different frameworks that can be classified into at least four separate measurement and reporting approaches being; Direct Intellectual Capital methods (DIC), Market Capitalization Methods (MCM), Return on Assets methods (ROA) and Scorecard methods (Luthy, 1998; Williams, 2001; Sveiby, 2007). Most of these frameworks, excepting some of the SC methods, were initially developed as either an explication of IC in dollar terms or as simple one page matrices representing a ‘balance sheet’ of intangibles (Sveiby, 2007). The exceptions were the SC methods that were developed as supplements to annual reports (see NSW Department of Lands, 2005; 2006), as well as comprehensive independent documents (see Systematic, 2002; 2004). The main differentiating feature of the supplemental and comprehensive documents is the use of narrative to compliment the reporting of the measures of IC. Some proponents take the view that disclosure should primarily take the form of the simple, one-page, accounting-style reports based solely on measures of the elements of IC (Society for Knowledge Economics, 2005). Alternately the use of narrative is well established in the IC literature (Mouritsen et al., 2001a; Mouritsen et al., 2001b; Mouritsen et al., 2002; Mouritsen et al., 2003) and its proponents advocate the use of narrative in the disclosure of IC, as it adds to the reasoning behind an organisation’s management and subsequent disclosure of IC. This is espoused by Mouritsen et al. (2002, p. 14) as follows; “The narrative presents something close to the identity of the firm, and therefore presents some kind of raison d’être of its activities. Therefore, when understanding knowledge as a narrative it is part of a wider justification of its role in helping the firm to develop and produce something ‘good’, and it also suggests where it is different from things, which in the situation is considered ‘bad’.” From the perspective of this paper, the use of narrative to offer just ‘reason’ to explain IC is a narrow view; instead the use of narrative is seen as being more powerful. This is because the
3
accounting literature and the managerial research literature offer different and useful purposes for narrative. For example, Llewellyn (1999, p. 233) indicates that narrative moves beyond explanation to allow for the construction of strategies, thus helping to enable a strategic argument in a way that accounting numbers cannot. Another example offered by Weick and Browning (1986), based on the use of narrative in the process of communication in organisations, emphasises the relevance of narration as the preferred form of communication over argument. This is because narration is seen to give greater meaning to the organisation as a whole as argument only emphasises the transmission of information from the sender to receiver, whereas narration represents communicative interactions that create social reality (Weick and Browning, 1986, pp. 248-9). From this position Weick and Browning assert that the use of narrative can potentially involve all members of the organisation arising from the view that people have ‘narrative capacity’; that is, the ability to judge the probability and fidelity of narratives. In addition narrative is seen as both an input and an output of communicative interactions and the reflective monitoring of organisational actors (Giddens, 1984, p. 29; Dumay, 2007). Thus narrative has the potential to create meaning in a way that accounting numbers cannot. These examples based on narrative offer the opportunity to explore the further utility that narrative can have in advancing the management, measurement and reporting of IC. To do this the next section offers empirical evidence from three different organisations who have utilised narrative in their attempts to manage, measure and report IC; and how this utilisation of narrative extends beyond just offering ‘reason’. In this light the individual cases analysis the change impacts of IC narratives. UTILISING NARRATIVE TO MOVE BEYOND REASON In this section three separate examples from different organisations are presented from recent research that has investigated the impact of the application of IC practice. While it is beyond the scope of this paper to present these case studies in full detail, a summarised explication of the research and the findings of this research, from the perspective of the utilisation of narrative, are presented. From this empirical evidence this paper demonstrates that the utility of narrative extends beyond just offering the raison d’être of an organisations IC practice activities. These cases are based on both structuralist 1 and interpretative2 approaches to research and analysis. The first two cases utilise the former based on a framework developed from structuration theory and a narrative theory; and the third case utilises the latter based on sensemaking. Thus in order to present the cases this section has four sub-sections. The first sub-section presents an out line of structuration theory and narrative utilised in an analytical framework for the first two cases, followed by these two cases as individual sub-sections. Last, the intepretivist framework and the final case are presented.
Narrative and Structuration
The purpose of this sub-section is to establish the theoretical priors used to frame the discussion of narrative IC disclosure and change in the first two cases. It is developed in two parts. First, it reviews the theory of structuration as espoused by Giddens (1976; 1984), and its applicability to management accounting and thus the IC paradigm. Second, it discusses the
1
A method of sociological analysis based on the notion of human society as a network of interrelations whose patterns and significance can be analysed
2
Relating to, involving, or providing an interpretation or explanation of something
4
concept of ‘agency’ within structuration theory and advocates the use of narratives as a preferred form of communicative interactions by agents.
‘Structuration’ Theory and IC
Weick and Browning (1986) assert that structure guides the interactions involved in the process of communication in organisations and that structure is also a result of communication. They base their argument on the theory of structuration as espoused by Giddens (1976; 1984) which is based on the notion of the ‘duality of structure’ and “the structuring of social relations across time and space” (Giddens, 1984, p. 376). The term ‘structure’ in structuration theory is not used in the classical organisational science sense to depict the interrelated functions of an entity. Here, Giddens (1984, p. 377) creates a neologism for the term ‘structure’ and defines it as “the rules and resources, recursively implicated in the reproduction of social systems”. As a result of this recursiveness, in structuration theory, structure is both a product of and the basis for the interactions of agents (Macintosh and Scapens, 1990). Giddens (1984, p. 29) explains that in structuration theory (see Figure 1) interactions (communication, power and sanction) are transformed into structure (signification, domination and legitmation) by way of modalities (interpretive schemes, facilities and norms) and vice versa. From the structuration perspective the disclosure of IC can have a possible impact on the way that members of an organisation understand IC; allocate resources to the management and measurement of IC; and legitimise the use of IC as a management technology. Utilising the concept of the ‘duality of structure’ it is further argued that this changes the basis of future interactions about, including communicative interactions. Thus, it is these communicative interactions, by means of IC disclosure, which is of interest in these cases. [Take in Figure 1 here] While structuration theory is a social theory grounded in developing critical insights (Giddens, 1984, p. 287; Bernstein, 1986; Laughlin, 1995, pp. 69-70) it has been used on several occasions in the study of management accounting to examine the results or impacts brought about by accounting change (Roberts and Scapens, 1985; Macintosh and Scapens, 1990). Scapens and Macintosh (1996, pp. 679-80) generalise management accounting from a structuration theory perspective and outline that it can be viewed from three aspects. First, interpretive schemes are used by management to understand the past, to plan and to act. Second, it provides the norms by which the values and ideals of the organisation are communicated. Third, it provides the facilities by which managers control and coordinate the activities of people in the organisation. From this perspective an accounting of IC is included as evidenced in the publication of IC reports and statements supplemental to annual reports (see NSW Department of Lands, 2005; 2006) and internal organisational documents such as IC scorecards (for example the Balanced Scorecard, Kaplan and Norton, 1992). The accounting of IC and the resultant internal and external disclosure of IC can also provide interpretive schemes, norms and facilities from which to view the duality of an organisation’s interactions and structure. In addition, there is evidence in the IC literature, to show that ‘structuration’ is also a valid tool for understanding the dynamics of change within organisations that have embarked upon implementing IC practices (Johanson et al., 2001, p. 724; Skoog, 2003; Johanson et al., 2006, p. 485). Thus, it is contended that structuration theory is a frame by which IC practices, such as the narrative disclosure of IC, can be discussed.
5
Structuration, Agency and Narrative
The purpose of this sub-section is to establish narrative within the context of structuration theory as a preferred form of ‘communicative interaction’. This is done by describing the concept of ‘agency’ and identifying that communicative interaction is one of the outcomes of agency. Communicative interactions can have two forms, ‘argumentative’ or ‘narrative’, and it is advocated that narrative is a preferred form of communicative interaction. To help frame this discussion, the relationship between structuration, agency and narrative is presented in . [Take in here] An important aspect of structuration theory is the concept of ‘agency’ which is “the actions taken by individuals in social settings” (Macintosh and Scapens, 1990, p. 458). Here, agents (individuals) are seen to intervene, rather than just automatically react to social a situation, which in turn allows agents to influence or fundamentally alter social structures. But in every intervention it is impossible for agents to: “… pause, reflect and make conscious choices about their behaviour” (Macintosh and Scapens, 1990, p. 458). Thus, the actions of agents are seen to be reflexive and are dependent on different levels of consciousness (Giddens, 1984, p. 7). The unconscious level is based upon a concept of ‘ontological security’ which allows actors to act because, as Giddens (1984, p. 375) explains, they have “… confidence or trust that the natural and social worlds are as they appear to be, including the basic existential parameters of self and social identity”. From a management accounting perspective ontological security can be derived indirectly from trust in the modalities of the interpretive schemes of the signification structures, for example a budgetary system (Macintosh and Scapens, 1990; Moore, 2006). On the conscious level, actors’ behaviour is considered reflexive, and according to Giddens (1984, p. 7) this conscious reflexivity occurs on two levels: practical and discursive. At the practical level agents use their tacit knowledge about how to act and interpret the world (Rose, 1998). It is this behaviour that Giddens (1984, p. xxiii) refers to as “routine” or “day-to-day” social activity. This concept of ‘routinization’ binds our unconsciousness with our discursive reflexivity and establishes changes in agents’ behaviours which become part of day-to-day organisational life (Giddens, 1984, pp. 60-4). At the discursive level, agents can imply reasoning and rationale to explain their actions within social settings; and they use linguistic skills to communicate about their actions. It is from this perspective that Weick and Browning (1986) argue that discourse can affect structure in addition to the modalities of interpretive schemes, norms and facilities. It is this discursive aspect of structuration theory that is of interest in these cases, especially from the perspective of how organisational agents communicate an accounting of IC using narrative and if this is part of recursive changes in the structure of the organisation. These changes can be the result of both the intended or unintended consequences of action and interaction and are a direct result of recognition by an agent, at the level of discursive consciousness, of the need to change structure (Giddens, 1984, pp. 8-12). Giddens (1976, p. 94) espouses that the communicative act within structuration theory can have two meanings: to be persuasive or to be propositional. Similarly, Weick and Browning (1986, pp. 243-5) identify two forms of communication which can effect organisational structure, more specifically the structure of ‘signification’ or meaning, being argument and narration. They contend that the application of structuration theory to the process of communication emphasises the relevance of narration as a preferred form of communication
6
because narration is seen to give greater meaning to the organisation as a whole. This is because argument only emphasises the transmission of information from the sender to receiver, whereas narration represents interactions that create social reality (Weick and Browning, 1986, pp. 248-9). Thus, the production of a narrative-based IC disclosure is based on an agent’s reflexivity at the practical level of consciousness is, in effect, a reproduction of the structure of the meaning of IC within an organisation. In addition, Weick and Browning (1986) claim that argument emphasises the need for a hierarchical system where qualified agents are required to judge the argument and other agents are meant to follow those who judge. Thus, they claim narration opposes argument because it can involve all members of the organisation. This is because it is asserted that all people have ‘narrative capacity’, that is, the ability to judge the probability and fidelity of narratives. This is what allows for all members of the organisation to become involved in communicative interactions rather than just the experts who can judge (Weick and Browning, 1986, p. 249). From the perspective of the narrative disclosure of IC, this implies that all organisational participants can potentially become involved, rather than just the accountants, managers and stakeholders who understand the meaning of ‘management accounting’ and or the meaning of IC.
Narrative at PARTSCO
The data in this study relates to the implementation of IC practice at ‘PARTSCO’ (disguised), a European manufacturer of automotive components. PARTSCO, a medium-sized firm embedded in a complex supply chain of high value-added production, has been managing its IC since 2000 and it began reporting on IC by way of a Statement of Intellectual Capital (SIC). The data for this research was obtained from visits to PARTSCO in 2004 and 2006 to investigate IC-in-action and from extensive access to primary and secondary sources of data as outlined in Table 1. [Take in Table 1 here] The SICs provide a narrative of its IC activities that allows for a longitudinal observation of changes at PARTSCO, how these were discussed or ignored, the conclusions drawn and the decisions made. Additionally, PARTSCO management provided feedback on the observations, reducing bias and specificity in the case study (Creswell, 1998; Yin, 2003). This feedback was essential, as by 2004 it was evident that PARTSCO management were dissatisfied with the results from their IC practice. In response to this dissatisfaction, the central problem addressed in this case is how IC management can progress beyond measurement and disclosure to provide a more dynamic interpretive scheme in order to meet strategic management’s demand that IC should “make a difference”. The analysis in this case is derived from field observations and from the narrative and metrics contained in the 2002 and 2005 SICs. This represented a significant passage of time to allow observation of change in the way that it reported on IC and its impact. To analyse the narrative in the SICs the above framework was used to examine the changes in PARTSCO’s management of IC between the two reports. In this light, the SIC is an interpretive scheme modality which reproduces the structure of IC at any particular point in time. It is representative of an ongoing communicative interaction, sponsored by management and brought about by reflexive monitoring of action and interaction of organisational actors in the development of IC by PARTSCO (see Tull and Dumay, 2007).
7
During the period between the publication of the SICs PARTSCO management struggled with economic downturn, changing customer relationship dynamics and emergence of stronger competition which increased business risk. This case found that from a starting point of a detailed quantitative reporting content in the SICs, an evolving use of greater narrative became increasingly important in this time of disruptive change and this was reflected in the changing basis of legitimacy claimed for their evolving IC practice. The narrative enabled PARTSCO to partially explain why and how it was developing its IC resources in response to its operating environment, to communicate more effectively with stakeholders and to give meaning to the selected and changing measures of IC. In addition, structuration theory provided a useful lens for analysing how the promotion and ‘routinization’ (see Giddens, 1984, p. 19) of IC narrative was intended by management to help make cognitive links between IC indicators and their meaning, in support of changes in management action due to the changing environment. The narrative analysis revealed that the stated aims of IC practice had not yet been fully realised by PARTSCO, partly due to inadequate narrative accounts of cause and effect linkages over time, providing a realistic example of the possible failings of IC practice due to the inadequacies of the modalities that are required to bring about recursive change. This was evidenced by the expressions of frustration about IC which constituted a reflexive monitoring by the Managing Director of the organisation’s capacity for strategic change, at the level of discursive consciousness. As a result, the original concept of IC affected the ‘structure’ of the organisation, but the task of recrafting IC within PARTSCO remained a ‘work in progress’ lacking a fully articulated ‘plot’ (Czarniawska, 1998). This study highlighted that the narrative contained in IC reports can help to better understand the evolution of IC through the analysis of observed management responses to changes in its operating environment. Thus the utility of narrative, when examined longitudinally, allows for the explication of the evolution of IC practice in organisations beyond a single point in time. So here the narrative not only offers the reasons for IC, but it also provides the historical context by which the IC report becomes an artefact of management action and a re-creation of the structure of IC leading to insights about the impact of IC in concert with an organisations ever-changing operating environment. This study also highlighted the need to better understand the evolution of IC in even relatively ‘non-knowledge intensive’ organisations through analysis of observed management responses to changes in the external environment. By means of structuration theory, future research could extend the investigation of such changes through analysis at both the discursive and reflexive levels. This provides a model for recursive change that can accommodate the dynamic effect of external factors mediated by reflexive agents, as well as the internal factors more frequently focused upon in IC discourse. Future research could use this approach to analyse the impact of IC in terms of the effects of IC practice modalities on the actions of agents.
Narrative at Lands
The research site for this case is the NSW Department of Lands (Lands), an Australian public sector organisation employing 1500 people. It is an organisation facing the effects of reforms that have instigated Public Trading Enterprise structures and more stringent financial performance requirements, which are typical of contemporary reforms found in the Australian public sector (English et al., 2005). These broader reforms have focused Lands to improve
8
performance and the manner in which it is articulated to the wider community with a specific senior management objective to “seek to identify, value and demonstrate the Knowledge (Intellectual) Capital within the Department” (NSW Department of Lands, 2004, 4). As a result of this objective, a commitment was made by the Director General to publish Lands’ first IC statement in their 2004/2005 annual report and this was carried out in this and the subsequent year’s report (see NSW Department of Lands, 2005; 2006). Notably, Lands is the first Australian Government organisation to publish a specific IC statement. They have utilised extensive narrative as part of that process and in addition to the external reporting of IC the use of narrative has flowed on to be used in other internal documents such as project reports, business plans and newsletters. The purpose of this case was not to judge the shortterm impact that the use of narrative has on external stakeholders, but to examine the impact that internal and external narrative disclosure of IC, has on the people and management processes within Lands. The aim of this paper is to investigate the manner and impact of IC disclosure. To frame the discussion, elements of Giddens’ ‘structuration’ theory and narrative theory are used to analyse change from within an organisation. The data for this case is based upon internal and external reports, data from observations and semi-structured interviews with 15 senior managers. The interviewees were chosen because they were impacted by Lands’ foray into the utilisation of IC as a management tool. The managers included the Director General (DG), six managers who were one level below the DG and eight managers who were two levels below. Using this diverse range of data it was then possible to construct from the evidence the story of narrative IC disclosure at Lands and to observe the impacts that it has had on the organisation. As in the PARTSCO case, the structuration theory lens was used to analyse the impact of these changes. Here the use of narrative from an IC perspective has changed from what Mouritsen identified as providing the ‘raison d’être’ of an organisation’s IC management activities to providing examples of how narrative was utilised to change the organisation and its activities. It was observed how reflective monitoring by individual actors caused them to change their perceptions from what IC was to what it did, such as changing from a short-term financial focus to a longer term focus on developing the IC resources of the organisation. This was espoused as another reason for the foray into the domain of IC practice. As the Lands 2004/05 annual report states (NSW Department of Lands, 2005, p. 7): “To concentrate only upon fiscal measures may cause managers to miss out on critical information important to current and future performance”. In addition, the role of narrative has changed from telling stories of the field (Czarniawska, 1998) to espousing what is possible in the future as a result of managing and developing IC resources. Here narrative was seen to have a wider application in its recursive role as both an enabler of organisational action and as a modality providing the communicative interaction which allows actors to reflect on those actions. Narrative has become another tool in Lands’ management tool box and was applied in a number of settings, extending from the original intention of providing new meaning and the ‘ raison d’être’ of IC. This is seen as the unintentional consequences of the application of narrative to disclose IC. One of the more taken-for-granted aspects of IC is that it needs to be managed and measured in the same way as tangible assets. As Newman (as quoted in Chaharbaghi and Cripps, 2006, p. 42) explains, the word ‘capital’ implies that knowledge is some form of material wealth that can be managed and that by investing in these assets this leads to the creation and
9
possession of knowledge resulting in more wealth, both of which are empirically unproven. One only has to look at the proliferation of the frameworks which attempt to ascribe a dollar value to IC or the balance sheets of IC in the format of ‘scorecards’ as ample evidence of this thinking (see Sveiby, 2007, for a review). The evidence presented in this case agrees with Newman’s position that it is not the measurement of IC that is most important. An interesting finding in this case was that the narrative is the enabler of change and not the accounting measures of IC. While narrative is seen to be useful by those trying to ‘account’ for IC in the annual report, it goes much further than its original intention with actors using narrative to achieve outcomes as evidenced by the use of narrative in business plans, project reports and newsletters. Thus the ‘ raison d’être’ becomes the ‘modus operandi’ as the focus shifts from trying to account for IC to enabling it. This then questions the relevance of trying to reify IC measurement and reporting frameworks based on the dominant frameworks of ‘accounting’ and accountability to stakeholders as found in Lands’ annual reports. These annual reports are questioned for their relevance and timeliness (see also Dumay and Tull, 2007) even if they do contain significant amounts of narrative. Rather it is project reports, business plans, newsletters and other documents which contain both narrative and numbers, that are more appropriate mechanisms for disclosing IC. This result is due to their timeliness. Lands’ annual reports still have relevance, as they continue to play a pivotal role in the structure of the relationship that Lands has with its constituents, the elected Government and other stakeholders. But what this case highlights is how it was possible to break the ‘accounting’ and financial performance mindset that dominated Lands’ prior to the introduction of the IC paradigm. In this light it was shown that IC provided the management of Lands a new way of looking at the resources of the organisation and how these might be utilised to maintain the organisation into the future. This new knowledge, aided by the use of narrative, provided the opportunity for Lands’ management to change the way it tackled relevant management issues. It exemplifies Weick & Browning’s (1986) contention that the use of narrative enables the possibility for all members of the organisation to become involved and not just the ‘accountants’ or the IC experts. Here narrative helps to transcend the boundaries of an external ‘accounting’ for IC via the annual report and became enveloped in a communicative discourse that involved not only Lands’ management but their employees, stakeholders and constituents as well. This case identifies two implications for research and practice. First, by taking a structuralist approach to analysing the narrative disclosure of IC this case moves beyond attempting to quantify or identify the wealth created by IC, and thus account for IC, that is so often the purpose of the plethora of current IC frameworks. By investigating the narrative disclosure of IC, initially in the form of the IC statement as a supplement to the annual report, it was shown how at Lands the use of narrative became routinized in the activities of management. Thus narrative was no longer used to only provide understanding of the IC measures and the reasoning behind the use of IC, but to provide a mechanism the engendered further management action and subsequent organisational change. Furthermore it was shown how narrative extends the boundaries of involvement by allowing management, employees, stakeholders and constituents to become involved; not just the accountants and IC experts. Thus narrative, in conjunction with IC, has become another tool in the tool box of Lands’ management.
10
Second, the use of structuration theory demonstrates that organisational change is not an event, but how change is continuous and recursive and that change in organisations happens not in indifference to its members but requires the reflective monitoring of agents and their continued input and involvement into the process of change. Thus, in this case it is shown how narrative can form an essential part of that process. This is not to say that narrative is the only enabler of change, but an essential part of the communicative interactions which is essential to recursive structural change in organisations. The limitation of this study is that it provides a lone example of a particular organisation from which generalisations are not possible. But it is possible to extend this research, using the structuration framework, to other organisations that have engendered the use of narrative to disclose IC to both internal and external stakeholders. Doing so will further question the domination of ‘accounting’ within the IC paradigm and provide additional insights that allows practitioners and academics to develop additional tools for understanding and utilising IC.
Narrative at AusFinCo
In this case, the research moves from a structuralist approach to an interpretative 3 approach to the utilisation of narrative. This case focuses on the BOP division of AusFinCo (disguised) which performs the back office functions for AusFinCo’s products; they manage the overall information technology (IT) architecture, support and enhance software systems, and manage and implement major projects. They make available infrastructure support for cash management, fraud, physical security, business services and records management. In addition, BOP manages AusFinCo’s property portfolio and outsourcing contracts. BOP employs 16% of AusFinCo’s staff and is responsible for 45% of AusFinCo’s expense base. The research in the AusFinCo case was conducted in two phases. In the first phase, a series of semi-structured interviews were conducted with BOP management in October and November of 2005. In all 11 interviews were conducted with senior management team. The purpose of the interviews was to establish the major ‘management challenges’ that were evident in BOP’s attempt to deliver value based on the current strategic objectives of the organisation. The study used focused interviews (also known as semi-structured interviews) as they allowed for the use of a specific set of questions aimed at why particular processes occur. The semistructured interview questions used in this research were designed (see Patton, 2002) to elicit insights into how the organisation and its members understood the value-creation process and the challenges involved in realising value. Doing so provided a dynamic perspective of valuecreation from ‘inside’ the organisation, as interpreted by the respondents. As a result of these interviews various elements of IC, being human capital and structural capital were identified which, according to the executive management of BOP, allow the delivery of customer value (relational capital). These elements were utilised in the next phase of research as outlined next. In the second phase of research, a sensemaking methodology referred to as ‘pre-hypothesis’ research was utilised (see Snowden, 2006; Dumay and Cuganesan, 2007a). At the heart the ‘pre-hypothesis’ method is what Snowden (2006) refers to as a sense making item (SMI). A SMI is defined as “anything that helps people make sense of the world they live in” (Snowden, 2006). The most common SMI form is that of an anecdote or short fragments of fully formed stories that are seen as part of human discourse and are at the heart of how people transfer knowledge to each other (Czarniawska, 1998).
3
Relating to, involving, or providing an interpretation or explanation of something
11
The use of SMIs is designed around prompting respondents to give narrative responses to non-directive questions. The theory is that when a person is asked a non-directive question that is answered with a narrative from either their point of view or a third-party perspective, is that they will more likely give answers based on their experiences. Allowing these narratives to be told from a third party perspective also allows for more honest answers, especially when the narrative could be embarrassing or negative from the respondents perspective. This is because allowing them to tell the narrative from a third party perspective allows them to distance themselves from the story thus delivering more truthful responses. In the case of BOP 208 narratives were gathered from 41 employees who were selected using a random sampling process. Each of the employees was asked to provide at least five narratives based on open questions about their experiences of work life at BOP. Each of these narratives were indexed using a set of abstract indicators that were developed based on various elements of IC identified in phase one to elicit understanding about IC. Classifying responses in terms of the prevalence of structural and human capital IC components provides an indication of the importance of the various factors. This is represented in Table 2. Table 2 provides both a confirmation and more detail on the IC components that are relevant to the conduct of business activities that impact the customer, as envisaged by BOP employees. But, given the complexities of IC, it was necessary to consider how each of the IC components influenced each other and the overall pattern of interaction. So in addition to investigating the perceived importance of each IC component, the interaction between them was also analysed. The visual map of the interaction pattern of IC at BOP is presented in Table 3. The basis of this map is a pair wise correlation analysis of the ranking scores provided by the employees for each of the IC components (for more detail, refer to Dumay and Cuganesan, 2007b). The table is colour coded to represent the strength of the interactions between the representations of elements of IC. Green denotes very strong interactions; orange denotes a strong interaction and grey denotes little or no inter-action. To simplify the analysis, the relational capital components considered to most identify with customer and shareholder value were selected as “value dimensions”, and the relationships between the various IC components and these dimensions have been represented in Table 4. This analysis provided insights into how IC works within BOP and the complexities of the IC-value creation nexus. Overall, a relationship between elements of Human Capital, Structural Capital and improvements in Relational Capital at AusFinCo is indicated from the perspective of BOP employees. The analysis indicated that people in BOP believe there is a relationship between a work environment that is seen to be attractive and engaging, develops competencies and offers employees a career that is both enabled by and allows the application of information and communication technology and the flow of knowledge. It is the view of BOP employees that the interaction of these intangible resources creates value for AusFinCo and its customers. This study was based on an interpretative approach of utilising organisational narrative to address contemporary calls in the IC literature for empirical investigations of the complex inter-relationships within IC and between IC and value creation in organisations (see Mouritsen, 2006). As such, the study makes two main contributions to the literature on IC. First, it provided empirically based understandings of the tangible and intangible assets of the
12
firm as a highly inter-dependent bundle of resources (Marr et al., 2004) and explanations of how IC resources ‘entangle’ and act productively (Mouritsen, 2004). Specifically, it highlighted the fluid and networked nature of IC, comprising complex inter-relationships between various elements and value (as presented in Table 3 and Table 4 for BOP). Thus, it provides some answers to the ‘big questions’ of “How does IC work in firms?”, “What is IC composed of?”, and “How is IC related to value?” (Mouritsen, 2006). Second, the findings have implications for the practices of measuring and managing IC. A number of models have been proposed that claim to explicate the nature of IC interrelationships and value creation. One such model is the IC accounting system proposed by Mouritsen et al (2001a) that has since been both empirically illustrated and incorporated into international guidelines for the development of IC statements (Mouritsen et al., 2003). Measurement-focused models have also been advanced as a means of focusing on IC and value creation. These include the Value-Creation Index (Baum et al., 2000) and the Value Creation Scoreboard (Lev, 2001), both of which identify a set of non-financial measures or drivers that are statistically associated with indicators of value such as share prices. Competing with these measurement models are a number of visualisation approaches. These include strategy maps (Kaplan and Norton, 2004), value creation maps (Marr et al., 2004) and IC-navigators (Fernstrom et al., 2004). While the above models and frameworks represent important advances within the IC discipline, they are silent on the issue of the problematic nature of utilising IC to create value. IC inter-relationships and their consequences for value creation are unstable and precarious, being contingent upon the manner of their deployment and use within organisational processes. Thus, managing IC based on insufficient ‘measurement’, representations and understandings of how IC is enacted to create value can have adverse effects for organisations, giving rise to intellectual liabilities (Caddy, 2000), orphan knowledge (Caddy, 2001; Caddy et al., 2001) or value dilution (Cuganesan, 2005). A principal contention of this third case study is that in revealing the complex and fluid nature of IC and value-creation, one needs to consider how IC is deployed and utilised in valuecreating activities. To this end, ‘measures’ of IC such as those provided in Table 3 and Table 4 for BOP provide support. While these might not be conventional ‘key performance indicators’ or performance measures as normally understood, they represent the relationships and importance of IC elements in organisational value creation processes. Furthermore, if repeated over time, the ‘numbers’ (correlation coefficients) will change as managerial interventions occur, environmental change takes place and as we observe changes in what IC is and how it works to effect value creation. Single and double-loop learning could thus occur in much the same way as is claimed by popular measurement frameworks such as the Balanced Scorecard (Kaplan and Norton, 2004). As such, it is proposed that the representations of IC as developed in the case and presented in Table 3 and Table 4 are a new means of ‘measuring’ IC within organisations. Thus, the utilisation of narrative as the foundation of these IC measurements establishes narrative as a rich source of data that helps make sense of IC and value creation in complex organisational environments in order to enable change. CONCLUSION As stated in the introduction the purpose of this paper was to present empirical material that showed how the utility of narrative in the measurement, management and reporting of IC went beyond just providing a reason for an organisation’s foray into IC practice. The three cases summarised in this paper do this in a number of ways and is discussed below.
13
The first two cases, PARTSCO and Lands, offer a structuralist approach to understanding the impacts of IC practice as exemplified in the organisations use of narrative. The analysis of PARTSCO’s IC narrative over time exemplifies not only the reasons for the management of IC, rather the narrative also becomes an artefact by which changes in an organisations operating environment and the relevant managerial responses can be assessed. This is seen to have wider implications from a managerial perspective as these artefacts capture the structure of IC as viewed from within the organisation. It shows that the impacts of IC can be examined through the story of IC rather than tracking changes in a series of IC indicators as is advocated by the proponents of ‘numerical’ approaches. This allows for the explication of not only the reasons for managing IC but extends to what Llewellyn (1999) identified as identifying the strategic arguments used by PARTSCO in response to its operating environment. This highlights that the management of IC is not done in isolation by trying to drive improvements in a series of abstract and relatively unchanging metrics; rather it highlights the need for organisations to continually change their IC strategy according to their environment. This is seen to be more of a realistic assessment of how IC works in organisations as the structural view of organisations reinforces that organisations are constantly changing as they reflect upon their assessment of past management actions, especially, as in the case of PARTSCO, if the consequences of those actions are not seen as having the desired strategic results. In the case of Lands, taking a structuralist approach to analysing the narrative disclosure of IC again moved beyond attempting to quantify or identify the wealth created by IC, and thus account for IC. By investigating the narrative disclosure of IC, initially in the form of the IC statement as a supplement to the annual report, it was shown how at Lands the use of narrative became routinized in the activities of management. This routinization is seen to be an essential indicator of the impact of IC in that it become embedded in an organisation (Giddens, 1984). Thus, narrative was no longer used to only provide understanding of the IC measures and the reasoning behind the use of IC, but to provide a mechanism that engendered further management action and subsequent organisational change. This realisation that narrative can become an enabler of IC management activity instead of just offering explanation of IC is an important transition in thinking about narrative because it further highlights the utility of narrative, not only from the perspective of IC, but also from the perspective of management in general. Additionally, it also questions the usefulness of what we identify as ‘reified’ accounting frameworks to measure, manage and report on IC, as these seem to not have the same power to change organisations as has been discovered with narrative. Thus narrative extends beyond the ‘raison d’être’ and becomes the ‘modus operandi’, shifting from trying to account for IC to enabling it. In the last case the examination of the utilisation of narrative at AusFinCo from an interpretive approach reinforces that the utility of narrative in investigating IC extends beyond offering reason. In this case, narrative is the data source rather than the outcome of the reflective monitoring and resultant communicative discourse about IC management practices. We see this as having important relevance to the future of research into the understanding of how IC works and impacts organisations. This is because there has been a longstanding desire by both practitioners and academics into understanding the complex nature of IC and how IC interacts to create value (Cuganesan, 2005). If such answers were known, then the take-up of IC management practices may well advance beyond what has been seen by some as slow progress. The research methods used in this case to identify the interaction between elements of IC and the perceived impact on value creation go some way towards making sense of the complex environment in which IC operates. While it is not advocated that what is presented in
14
this case is the ‘answer’, it does however exemplify what can be potentially done by changing the way that narrative is utilised in IC research. To finalise this paper we offer the view that the utilisation of narrative in future IC research can help extend the understanding of IC and its impact on organisations beyond the scope of ‘accounting’. In the cases presented in this paper, narrative is seen to offer rich accounts of IC in a way that is not possible with numbers alone. Additionally, the use of narrative in research allows us to view inside the organisation and to see human actors in action and to better understand their perceptions based on the communicative interactions that the resultant narrative artefacts provide. This highlights Mouritsen’s (2006) view that what is needed are more examples of research that examine IC in action, rather than attempting to develop additional all-encompassing IC frameworks.
15
Table 1: PartscoData Collection 2004-2006
Sources Management presentations, informal interviews during site visits, 2004 and 2006 Statement of Intangible Capital 2002, 2005
Represented by Internal IC Documents, observations, unstructured dialogue, field notes IC measurements, accompanying narrative
16
Table 2: Ranking of IC components IC Component Frequency of Self-Indexing Relational Capital Creates value for AusFinCo 187 Beating the competition 148 Creates value for customer 146 Requires a knowledge worker 145 Positive customer experience 140 Technology helping customers 117 Requires a process worker 109 Sharing knowledge externally 98 I can see the customer 94 Structural Capital Effective lines of communication 159 Technology supports processes 135 People helping customers 131 Easy to use technology 126 Technology supports customers 117 Performance is product based 107 Innovative products 99 Product focussed 87 Human Capital An attractive place to work 172 Trained and competent staff 159 Learning from others 146 The work is engaging 145 Long term career 134 Set in their ways 108 The new generation 92 Looking to retire 75
17
Table 3: Map of inter-relationships of IC
IC Elements Positive customer experience Relational Capital Technology helping customers Requires a knowledge worker Sharing knowledge externally Structural Capital Effective lines of communication Technology supports customers Technology supports processes Performance is product based Human Capital
Trained and competent staff
Creates value for AusFinCo
Creates value for customer
Requires a process worker
An attractive place to work
People helping customers
Beating the competition
Easy to use technology
IC Elements
I can see the customer
The work is engaging
Learning from others
Product focussed
Long term career
Set in their ways
Positive customer experience Creates value for AusFinCo Relational Capital I can see the customer Sharing knowledge externally Requires a knowledge worker Beating the competition Creates value for customer Requires a process worker Technology helping customers Product focussed Structural Capital Innovative products Performance is product based Easy to use technology People helping customers Effective lines of communication Technology supports customers Technology supports processes The work is engaging Trained and competent staff Human Capital Learning from others Long term career Set in their ways An attractive place to work The new generation Looking to retire
Looking to retire
Abstract indicators
The new generation
Innovative products
18
Table 4: Value dimensions and inter-actions with IC components.
IC Elements Value Dimension IC Components Creates value for customer Creates value for AusFinCo Beating the competition Positive customer experience
Positive customer experience Creates value for AusFinCo Relational Capital Structural Capital Human Capital I can see the customer Sharing knowledge externally Requires a knowledge worker Beating the competition Creates value for customer Requires a process worker Technology helping customers Product focussed Innovative products Performance is product based Easy to use technology People helping customers Effective lines of communication Technology supports customers Technology supports processes The work is engaging Trained and competent staff Learning from others Long term career Set in their ways An attractive place to work The new generation Looking to retire
19
Figure 1: Giddens' 'Structuration' Theory Model
Source: Giddens (1984, p. 29)
Figure 2: Structuration, Agency and Narrative
Adapted from Macintosh and Scapens (1990, p. 459)
20
REFERENCES
21
doc_201875700.doc
Management Study on the Utility of Narrative in Advancing the Management of Intellectual Capital:- Intellectual capital is the difference in value between tangible assets (physical and financial) and market value.[1][2] This contrasts with physical and financial forms of capital; all three make up the value of an enterprise.
Management Study on the Utility of Narrative in Advancing the Management of Intellectual Capital
ABSTRACT The use of narrative in the intellectual capital (IC) literature has been espoused as providing the rationalisation for organisations’ forays in to IC practice. This identified as a narrow view which prompts a fuller investigation of the utility of narrative in relation to IC. To argue this point, three case studies are summarised. Each offers a different analysis of the utility of narrative from an IC perspective. The first two cases take a structuralist view of IC in action. The first identifies that IC narrative offers the opportunity to understand the impact of IC over time. The second concludes that narrative extends beyond offering the ‘raison d’être’ and becomes the ‘modus operandi’. The third case uses narrative in an interpretive approach to understanding the complex interactions between IC elements and value creation. The overarching conclusion of the paper is to identify how narrative allows insights into IC in action in a way that numbers alone cannot.
INTRODUCTION The use of narrative in the measurement, management and reporting of intellectual capital (IC) reports is well established. Both the Meritum guidelines (Meritum Project, 2002) and the Danish IC reporting guidelines (Mouritsen et al., 2001b; Mouritsen et al., 2003) have established the use of narrative as an important element of this process and many organisations, both public and private, have utilised narrative in this regard (Systematic, 2002; 2004; NSW Department of Lands, 2005; 2006; Dumay and Guthrie, 2007). As Mouritsen et al. (2002, p. 14) explain, this use of narrative adds to the reasoning behind an organisation’s management and subsequent disclosure of IC. So here narrative is seen to be giving meaningful reasoning of why and how an organisation is concerned with managing its IC in addition to disclosing its IC measures. Narrative utilised in this way helps in understanding organisations’ actions in relation to IC management, measurement and reporting and as a basis for explicating IC from the perspective of the organisation’s actors who constructed the narrative. Narrative is also the main differentiating feature of supplemental and comprehensive documents which contrast the simple, one-page, accounting-style reports (Society for Knowledge Economics, 2005; Sveiby, 2007) based solely on measures of the elements of IC which dominated IC literature and practice in the 1990’s (Sveiby, 2007). Thus, narrative can be viewed as an additional tool that has been used to further advance IC in both the academic literature and in practice. But the espoused use of narrative solely as an explanation of the reasons behind an organisation’s management of IC it is seen as too narrow. This is because narrative has been identified as not only allowing for organisations to explain their actions, but it can also be used to “reveal the individual, human projects within organizations and… construct and identify emerging organizational strategies” (Llewellyn, 1999, p. 233). Additionally narrative can be used to represent communicative interactions that create social reality offering greater involvement of organisational actors (Weick and Browning, 1986). This expanded view of the usefulness of narrative leads to the purpose of this paper, which is to explore the further utility that narrative can have in advancing the management of IC beyond just ‘reason’. To achieve this aim this paper is presented in three further sections. First a brief history of the development of frameworks for the management, measurement and reporting of IC is offered, identifying how the use of narrative came about. Second, evidence from three organisations is discussed to exemplify the different uses of narrative in the management, measurement and reporting of IC. Third, a conclusion summarises the findings of the cases presented in this paper and outlines some implications for further research. NARRATIVE IN IC MEASUREMENT, MANAGEMENT AND REPORTING The measurement, management and reporting IC have become prominent, especially in Europe and more specifically in the Scandinavian countries, over the past two decades. But the recognition of IC or intangibles has been considered an important concept for business in the past and not just in the so called ‘knowledge economy’. A prominent economist at the turn of the 20th century, Professor Thorstein Veblen (1904, p. 154) was also cognisant of the process of value creation in that he identified that all of the capital employed in a business has an element of intangibility. He is quoted as saying: “All capital … is subjected to an interminable process of valuation and revaluation … on the basis of its presumptive earningcapacity, whereby it all assumes more or less of a character of intangibility.” So if business
2
has been aware of the value of intangible assets how have they measured and reported on it in the past? Ordóñez de Pablos (2002) identifies that the management of IC is the combination of business elements that were managed separately before. These elements include human resource management, organizational development, change management, information technology, brand and reputation management, performance management and valuation. Thus, organizations have been measuring and managing these elements for many years but not necessarily under the banner of IC. In the 1990’s authors and practitioners such as Stewart (1997), began using terms ‘intellectual capital’ and ‘intangible assets’, often synonymously; and began to provide frameworks for the measurement, management and reporting of IC. One of the more prominent of these frameworks was Sveiby’s (1997) framework entitled the ‘Intangible Assets Monitor’ which was in part influenced by the ‘Balanced Scorecard’ as developed by Kaplan and Norton (1992) which had already begun to gain prominence in the USA. In the mid 1990’s the Scandinavian insurance company, Skandia, combined the principles of the ‘Intangible Assets Monitor’ and the ‘Balanced Scorecard’ to develop the ‘Skandia Navigator’. Skandia used the Navigator framework and began to report externally on IC by way of an IC report which was a supplement to their annual financial report (Skandia, 1994; 1995; 1996; 1998; Mouritsen et al., 2001a). This work has continued into the 21st century and led to a proliferation of frameworks for the measurement, management and reporting of IC and intangible assets. Sveiby (2007) identifies 34 different frameworks that can be classified into at least four separate measurement and reporting approaches being; Direct Intellectual Capital methods (DIC), Market Capitalization Methods (MCM), Return on Assets methods (ROA) and Scorecard methods (Luthy, 1998; Williams, 2001; Sveiby, 2007). Most of these frameworks, excepting some of the SC methods, were initially developed as either an explication of IC in dollar terms or as simple one page matrices representing a ‘balance sheet’ of intangibles (Sveiby, 2007). The exceptions were the SC methods that were developed as supplements to annual reports (see NSW Department of Lands, 2005; 2006), as well as comprehensive independent documents (see Systematic, 2002; 2004). The main differentiating feature of the supplemental and comprehensive documents is the use of narrative to compliment the reporting of the measures of IC. Some proponents take the view that disclosure should primarily take the form of the simple, one-page, accounting-style reports based solely on measures of the elements of IC (Society for Knowledge Economics, 2005). Alternately the use of narrative is well established in the IC literature (Mouritsen et al., 2001a; Mouritsen et al., 2001b; Mouritsen et al., 2002; Mouritsen et al., 2003) and its proponents advocate the use of narrative in the disclosure of IC, as it adds to the reasoning behind an organisation’s management and subsequent disclosure of IC. This is espoused by Mouritsen et al. (2002, p. 14) as follows; “The narrative presents something close to the identity of the firm, and therefore presents some kind of raison d’être of its activities. Therefore, when understanding knowledge as a narrative it is part of a wider justification of its role in helping the firm to develop and produce something ‘good’, and it also suggests where it is different from things, which in the situation is considered ‘bad’.” From the perspective of this paper, the use of narrative to offer just ‘reason’ to explain IC is a narrow view; instead the use of narrative is seen as being more powerful. This is because the
3
accounting literature and the managerial research literature offer different and useful purposes for narrative. For example, Llewellyn (1999, p. 233) indicates that narrative moves beyond explanation to allow for the construction of strategies, thus helping to enable a strategic argument in a way that accounting numbers cannot. Another example offered by Weick and Browning (1986), based on the use of narrative in the process of communication in organisations, emphasises the relevance of narration as the preferred form of communication over argument. This is because narration is seen to give greater meaning to the organisation as a whole as argument only emphasises the transmission of information from the sender to receiver, whereas narration represents communicative interactions that create social reality (Weick and Browning, 1986, pp. 248-9). From this position Weick and Browning assert that the use of narrative can potentially involve all members of the organisation arising from the view that people have ‘narrative capacity’; that is, the ability to judge the probability and fidelity of narratives. In addition narrative is seen as both an input and an output of communicative interactions and the reflective monitoring of organisational actors (Giddens, 1984, p. 29; Dumay, 2007). Thus narrative has the potential to create meaning in a way that accounting numbers cannot. These examples based on narrative offer the opportunity to explore the further utility that narrative can have in advancing the management, measurement and reporting of IC. To do this the next section offers empirical evidence from three different organisations who have utilised narrative in their attempts to manage, measure and report IC; and how this utilisation of narrative extends beyond just offering ‘reason’. In this light the individual cases analysis the change impacts of IC narratives. UTILISING NARRATIVE TO MOVE BEYOND REASON In this section three separate examples from different organisations are presented from recent research that has investigated the impact of the application of IC practice. While it is beyond the scope of this paper to present these case studies in full detail, a summarised explication of the research and the findings of this research, from the perspective of the utilisation of narrative, are presented. From this empirical evidence this paper demonstrates that the utility of narrative extends beyond just offering the raison d’être of an organisations IC practice activities. These cases are based on both structuralist 1 and interpretative2 approaches to research and analysis. The first two cases utilise the former based on a framework developed from structuration theory and a narrative theory; and the third case utilises the latter based on sensemaking. Thus in order to present the cases this section has four sub-sections. The first sub-section presents an out line of structuration theory and narrative utilised in an analytical framework for the first two cases, followed by these two cases as individual sub-sections. Last, the intepretivist framework and the final case are presented.
Narrative and Structuration
The purpose of this sub-section is to establish the theoretical priors used to frame the discussion of narrative IC disclosure and change in the first two cases. It is developed in two parts. First, it reviews the theory of structuration as espoused by Giddens (1976; 1984), and its applicability to management accounting and thus the IC paradigm. Second, it discusses the
1
A method of sociological analysis based on the notion of human society as a network of interrelations whose patterns and significance can be analysed
2
Relating to, involving, or providing an interpretation or explanation of something
4
concept of ‘agency’ within structuration theory and advocates the use of narratives as a preferred form of communicative interactions by agents.
‘Structuration’ Theory and IC
Weick and Browning (1986) assert that structure guides the interactions involved in the process of communication in organisations and that structure is also a result of communication. They base their argument on the theory of structuration as espoused by Giddens (1976; 1984) which is based on the notion of the ‘duality of structure’ and “the structuring of social relations across time and space” (Giddens, 1984, p. 376). The term ‘structure’ in structuration theory is not used in the classical organisational science sense to depict the interrelated functions of an entity. Here, Giddens (1984, p. 377) creates a neologism for the term ‘structure’ and defines it as “the rules and resources, recursively implicated in the reproduction of social systems”. As a result of this recursiveness, in structuration theory, structure is both a product of and the basis for the interactions of agents (Macintosh and Scapens, 1990). Giddens (1984, p. 29) explains that in structuration theory (see Figure 1) interactions (communication, power and sanction) are transformed into structure (signification, domination and legitmation) by way of modalities (interpretive schemes, facilities and norms) and vice versa. From the structuration perspective the disclosure of IC can have a possible impact on the way that members of an organisation understand IC; allocate resources to the management and measurement of IC; and legitimise the use of IC as a management technology. Utilising the concept of the ‘duality of structure’ it is further argued that this changes the basis of future interactions about, including communicative interactions. Thus, it is these communicative interactions, by means of IC disclosure, which is of interest in these cases. [Take in Figure 1 here] While structuration theory is a social theory grounded in developing critical insights (Giddens, 1984, p. 287; Bernstein, 1986; Laughlin, 1995, pp. 69-70) it has been used on several occasions in the study of management accounting to examine the results or impacts brought about by accounting change (Roberts and Scapens, 1985; Macintosh and Scapens, 1990). Scapens and Macintosh (1996, pp. 679-80) generalise management accounting from a structuration theory perspective and outline that it can be viewed from three aspects. First, interpretive schemes are used by management to understand the past, to plan and to act. Second, it provides the norms by which the values and ideals of the organisation are communicated. Third, it provides the facilities by which managers control and coordinate the activities of people in the organisation. From this perspective an accounting of IC is included as evidenced in the publication of IC reports and statements supplemental to annual reports (see NSW Department of Lands, 2005; 2006) and internal organisational documents such as IC scorecards (for example the Balanced Scorecard, Kaplan and Norton, 1992). The accounting of IC and the resultant internal and external disclosure of IC can also provide interpretive schemes, norms and facilities from which to view the duality of an organisation’s interactions and structure. In addition, there is evidence in the IC literature, to show that ‘structuration’ is also a valid tool for understanding the dynamics of change within organisations that have embarked upon implementing IC practices (Johanson et al., 2001, p. 724; Skoog, 2003; Johanson et al., 2006, p. 485). Thus, it is contended that structuration theory is a frame by which IC practices, such as the narrative disclosure of IC, can be discussed.
5
Structuration, Agency and Narrative
The purpose of this sub-section is to establish narrative within the context of structuration theory as a preferred form of ‘communicative interaction’. This is done by describing the concept of ‘agency’ and identifying that communicative interaction is one of the outcomes of agency. Communicative interactions can have two forms, ‘argumentative’ or ‘narrative’, and it is advocated that narrative is a preferred form of communicative interaction. To help frame this discussion, the relationship between structuration, agency and narrative is presented in . [Take in here] An important aspect of structuration theory is the concept of ‘agency’ which is “the actions taken by individuals in social settings” (Macintosh and Scapens, 1990, p. 458). Here, agents (individuals) are seen to intervene, rather than just automatically react to social a situation, which in turn allows agents to influence or fundamentally alter social structures. But in every intervention it is impossible for agents to: “… pause, reflect and make conscious choices about their behaviour” (Macintosh and Scapens, 1990, p. 458). Thus, the actions of agents are seen to be reflexive and are dependent on different levels of consciousness (Giddens, 1984, p. 7). The unconscious level is based upon a concept of ‘ontological security’ which allows actors to act because, as Giddens (1984, p. 375) explains, they have “… confidence or trust that the natural and social worlds are as they appear to be, including the basic existential parameters of self and social identity”. From a management accounting perspective ontological security can be derived indirectly from trust in the modalities of the interpretive schemes of the signification structures, for example a budgetary system (Macintosh and Scapens, 1990; Moore, 2006). On the conscious level, actors’ behaviour is considered reflexive, and according to Giddens (1984, p. 7) this conscious reflexivity occurs on two levels: practical and discursive. At the practical level agents use their tacit knowledge about how to act and interpret the world (Rose, 1998). It is this behaviour that Giddens (1984, p. xxiii) refers to as “routine” or “day-to-day” social activity. This concept of ‘routinization’ binds our unconsciousness with our discursive reflexivity and establishes changes in agents’ behaviours which become part of day-to-day organisational life (Giddens, 1984, pp. 60-4). At the discursive level, agents can imply reasoning and rationale to explain their actions within social settings; and they use linguistic skills to communicate about their actions. It is from this perspective that Weick and Browning (1986) argue that discourse can affect structure in addition to the modalities of interpretive schemes, norms and facilities. It is this discursive aspect of structuration theory that is of interest in these cases, especially from the perspective of how organisational agents communicate an accounting of IC using narrative and if this is part of recursive changes in the structure of the organisation. These changes can be the result of both the intended or unintended consequences of action and interaction and are a direct result of recognition by an agent, at the level of discursive consciousness, of the need to change structure (Giddens, 1984, pp. 8-12). Giddens (1976, p. 94) espouses that the communicative act within structuration theory can have two meanings: to be persuasive or to be propositional. Similarly, Weick and Browning (1986, pp. 243-5) identify two forms of communication which can effect organisational structure, more specifically the structure of ‘signification’ or meaning, being argument and narration. They contend that the application of structuration theory to the process of communication emphasises the relevance of narration as a preferred form of communication
6
because narration is seen to give greater meaning to the organisation as a whole. This is because argument only emphasises the transmission of information from the sender to receiver, whereas narration represents interactions that create social reality (Weick and Browning, 1986, pp. 248-9). Thus, the production of a narrative-based IC disclosure is based on an agent’s reflexivity at the practical level of consciousness is, in effect, a reproduction of the structure of the meaning of IC within an organisation. In addition, Weick and Browning (1986) claim that argument emphasises the need for a hierarchical system where qualified agents are required to judge the argument and other agents are meant to follow those who judge. Thus, they claim narration opposes argument because it can involve all members of the organisation. This is because it is asserted that all people have ‘narrative capacity’, that is, the ability to judge the probability and fidelity of narratives. This is what allows for all members of the organisation to become involved in communicative interactions rather than just the experts who can judge (Weick and Browning, 1986, p. 249). From the perspective of the narrative disclosure of IC, this implies that all organisational participants can potentially become involved, rather than just the accountants, managers and stakeholders who understand the meaning of ‘management accounting’ and or the meaning of IC.
Narrative at PARTSCO
The data in this study relates to the implementation of IC practice at ‘PARTSCO’ (disguised), a European manufacturer of automotive components. PARTSCO, a medium-sized firm embedded in a complex supply chain of high value-added production, has been managing its IC since 2000 and it began reporting on IC by way of a Statement of Intellectual Capital (SIC). The data for this research was obtained from visits to PARTSCO in 2004 and 2006 to investigate IC-in-action and from extensive access to primary and secondary sources of data as outlined in Table 1. [Take in Table 1 here] The SICs provide a narrative of its IC activities that allows for a longitudinal observation of changes at PARTSCO, how these were discussed or ignored, the conclusions drawn and the decisions made. Additionally, PARTSCO management provided feedback on the observations, reducing bias and specificity in the case study (Creswell, 1998; Yin, 2003). This feedback was essential, as by 2004 it was evident that PARTSCO management were dissatisfied with the results from their IC practice. In response to this dissatisfaction, the central problem addressed in this case is how IC management can progress beyond measurement and disclosure to provide a more dynamic interpretive scheme in order to meet strategic management’s demand that IC should “make a difference”. The analysis in this case is derived from field observations and from the narrative and metrics contained in the 2002 and 2005 SICs. This represented a significant passage of time to allow observation of change in the way that it reported on IC and its impact. To analyse the narrative in the SICs the above framework was used to examine the changes in PARTSCO’s management of IC between the two reports. In this light, the SIC is an interpretive scheme modality which reproduces the structure of IC at any particular point in time. It is representative of an ongoing communicative interaction, sponsored by management and brought about by reflexive monitoring of action and interaction of organisational actors in the development of IC by PARTSCO (see Tull and Dumay, 2007).
7
During the period between the publication of the SICs PARTSCO management struggled with economic downturn, changing customer relationship dynamics and emergence of stronger competition which increased business risk. This case found that from a starting point of a detailed quantitative reporting content in the SICs, an evolving use of greater narrative became increasingly important in this time of disruptive change and this was reflected in the changing basis of legitimacy claimed for their evolving IC practice. The narrative enabled PARTSCO to partially explain why and how it was developing its IC resources in response to its operating environment, to communicate more effectively with stakeholders and to give meaning to the selected and changing measures of IC. In addition, structuration theory provided a useful lens for analysing how the promotion and ‘routinization’ (see Giddens, 1984, p. 19) of IC narrative was intended by management to help make cognitive links between IC indicators and their meaning, in support of changes in management action due to the changing environment. The narrative analysis revealed that the stated aims of IC practice had not yet been fully realised by PARTSCO, partly due to inadequate narrative accounts of cause and effect linkages over time, providing a realistic example of the possible failings of IC practice due to the inadequacies of the modalities that are required to bring about recursive change. This was evidenced by the expressions of frustration about IC which constituted a reflexive monitoring by the Managing Director of the organisation’s capacity for strategic change, at the level of discursive consciousness. As a result, the original concept of IC affected the ‘structure’ of the organisation, but the task of recrafting IC within PARTSCO remained a ‘work in progress’ lacking a fully articulated ‘plot’ (Czarniawska, 1998). This study highlighted that the narrative contained in IC reports can help to better understand the evolution of IC through the analysis of observed management responses to changes in its operating environment. Thus the utility of narrative, when examined longitudinally, allows for the explication of the evolution of IC practice in organisations beyond a single point in time. So here the narrative not only offers the reasons for IC, but it also provides the historical context by which the IC report becomes an artefact of management action and a re-creation of the structure of IC leading to insights about the impact of IC in concert with an organisations ever-changing operating environment. This study also highlighted the need to better understand the evolution of IC in even relatively ‘non-knowledge intensive’ organisations through analysis of observed management responses to changes in the external environment. By means of structuration theory, future research could extend the investigation of such changes through analysis at both the discursive and reflexive levels. This provides a model for recursive change that can accommodate the dynamic effect of external factors mediated by reflexive agents, as well as the internal factors more frequently focused upon in IC discourse. Future research could use this approach to analyse the impact of IC in terms of the effects of IC practice modalities on the actions of agents.
Narrative at Lands
The research site for this case is the NSW Department of Lands (Lands), an Australian public sector organisation employing 1500 people. It is an organisation facing the effects of reforms that have instigated Public Trading Enterprise structures and more stringent financial performance requirements, which are typical of contemporary reforms found in the Australian public sector (English et al., 2005). These broader reforms have focused Lands to improve
8
performance and the manner in which it is articulated to the wider community with a specific senior management objective to “seek to identify, value and demonstrate the Knowledge (Intellectual) Capital within the Department” (NSW Department of Lands, 2004, 4). As a result of this objective, a commitment was made by the Director General to publish Lands’ first IC statement in their 2004/2005 annual report and this was carried out in this and the subsequent year’s report (see NSW Department of Lands, 2005; 2006). Notably, Lands is the first Australian Government organisation to publish a specific IC statement. They have utilised extensive narrative as part of that process and in addition to the external reporting of IC the use of narrative has flowed on to be used in other internal documents such as project reports, business plans and newsletters. The purpose of this case was not to judge the shortterm impact that the use of narrative has on external stakeholders, but to examine the impact that internal and external narrative disclosure of IC, has on the people and management processes within Lands. The aim of this paper is to investigate the manner and impact of IC disclosure. To frame the discussion, elements of Giddens’ ‘structuration’ theory and narrative theory are used to analyse change from within an organisation. The data for this case is based upon internal and external reports, data from observations and semi-structured interviews with 15 senior managers. The interviewees were chosen because they were impacted by Lands’ foray into the utilisation of IC as a management tool. The managers included the Director General (DG), six managers who were one level below the DG and eight managers who were two levels below. Using this diverse range of data it was then possible to construct from the evidence the story of narrative IC disclosure at Lands and to observe the impacts that it has had on the organisation. As in the PARTSCO case, the structuration theory lens was used to analyse the impact of these changes. Here the use of narrative from an IC perspective has changed from what Mouritsen identified as providing the ‘raison d’être’ of an organisation’s IC management activities to providing examples of how narrative was utilised to change the organisation and its activities. It was observed how reflective monitoring by individual actors caused them to change their perceptions from what IC was to what it did, such as changing from a short-term financial focus to a longer term focus on developing the IC resources of the organisation. This was espoused as another reason for the foray into the domain of IC practice. As the Lands 2004/05 annual report states (NSW Department of Lands, 2005, p. 7): “To concentrate only upon fiscal measures may cause managers to miss out on critical information important to current and future performance”. In addition, the role of narrative has changed from telling stories of the field (Czarniawska, 1998) to espousing what is possible in the future as a result of managing and developing IC resources. Here narrative was seen to have a wider application in its recursive role as both an enabler of organisational action and as a modality providing the communicative interaction which allows actors to reflect on those actions. Narrative has become another tool in Lands’ management tool box and was applied in a number of settings, extending from the original intention of providing new meaning and the ‘ raison d’être’ of IC. This is seen as the unintentional consequences of the application of narrative to disclose IC. One of the more taken-for-granted aspects of IC is that it needs to be managed and measured in the same way as tangible assets. As Newman (as quoted in Chaharbaghi and Cripps, 2006, p. 42) explains, the word ‘capital’ implies that knowledge is some form of material wealth that can be managed and that by investing in these assets this leads to the creation and
9
possession of knowledge resulting in more wealth, both of which are empirically unproven. One only has to look at the proliferation of the frameworks which attempt to ascribe a dollar value to IC or the balance sheets of IC in the format of ‘scorecards’ as ample evidence of this thinking (see Sveiby, 2007, for a review). The evidence presented in this case agrees with Newman’s position that it is not the measurement of IC that is most important. An interesting finding in this case was that the narrative is the enabler of change and not the accounting measures of IC. While narrative is seen to be useful by those trying to ‘account’ for IC in the annual report, it goes much further than its original intention with actors using narrative to achieve outcomes as evidenced by the use of narrative in business plans, project reports and newsletters. Thus the ‘ raison d’être’ becomes the ‘modus operandi’ as the focus shifts from trying to account for IC to enabling it. This then questions the relevance of trying to reify IC measurement and reporting frameworks based on the dominant frameworks of ‘accounting’ and accountability to stakeholders as found in Lands’ annual reports. These annual reports are questioned for their relevance and timeliness (see also Dumay and Tull, 2007) even if they do contain significant amounts of narrative. Rather it is project reports, business plans, newsletters and other documents which contain both narrative and numbers, that are more appropriate mechanisms for disclosing IC. This result is due to their timeliness. Lands’ annual reports still have relevance, as they continue to play a pivotal role in the structure of the relationship that Lands has with its constituents, the elected Government and other stakeholders. But what this case highlights is how it was possible to break the ‘accounting’ and financial performance mindset that dominated Lands’ prior to the introduction of the IC paradigm. In this light it was shown that IC provided the management of Lands a new way of looking at the resources of the organisation and how these might be utilised to maintain the organisation into the future. This new knowledge, aided by the use of narrative, provided the opportunity for Lands’ management to change the way it tackled relevant management issues. It exemplifies Weick & Browning’s (1986) contention that the use of narrative enables the possibility for all members of the organisation to become involved and not just the ‘accountants’ or the IC experts. Here narrative helps to transcend the boundaries of an external ‘accounting’ for IC via the annual report and became enveloped in a communicative discourse that involved not only Lands’ management but their employees, stakeholders and constituents as well. This case identifies two implications for research and practice. First, by taking a structuralist approach to analysing the narrative disclosure of IC this case moves beyond attempting to quantify or identify the wealth created by IC, and thus account for IC, that is so often the purpose of the plethora of current IC frameworks. By investigating the narrative disclosure of IC, initially in the form of the IC statement as a supplement to the annual report, it was shown how at Lands the use of narrative became routinized in the activities of management. Thus narrative was no longer used to only provide understanding of the IC measures and the reasoning behind the use of IC, but to provide a mechanism the engendered further management action and subsequent organisational change. Furthermore it was shown how narrative extends the boundaries of involvement by allowing management, employees, stakeholders and constituents to become involved; not just the accountants and IC experts. Thus narrative, in conjunction with IC, has become another tool in the tool box of Lands’ management.
10
Second, the use of structuration theory demonstrates that organisational change is not an event, but how change is continuous and recursive and that change in organisations happens not in indifference to its members but requires the reflective monitoring of agents and their continued input and involvement into the process of change. Thus, in this case it is shown how narrative can form an essential part of that process. This is not to say that narrative is the only enabler of change, but an essential part of the communicative interactions which is essential to recursive structural change in organisations. The limitation of this study is that it provides a lone example of a particular organisation from which generalisations are not possible. But it is possible to extend this research, using the structuration framework, to other organisations that have engendered the use of narrative to disclose IC to both internal and external stakeholders. Doing so will further question the domination of ‘accounting’ within the IC paradigm and provide additional insights that allows practitioners and academics to develop additional tools for understanding and utilising IC.
Narrative at AusFinCo
In this case, the research moves from a structuralist approach to an interpretative 3 approach to the utilisation of narrative. This case focuses on the BOP division of AusFinCo (disguised) which performs the back office functions for AusFinCo’s products; they manage the overall information technology (IT) architecture, support and enhance software systems, and manage and implement major projects. They make available infrastructure support for cash management, fraud, physical security, business services and records management. In addition, BOP manages AusFinCo’s property portfolio and outsourcing contracts. BOP employs 16% of AusFinCo’s staff and is responsible for 45% of AusFinCo’s expense base. The research in the AusFinCo case was conducted in two phases. In the first phase, a series of semi-structured interviews were conducted with BOP management in October and November of 2005. In all 11 interviews were conducted with senior management team. The purpose of the interviews was to establish the major ‘management challenges’ that were evident in BOP’s attempt to deliver value based on the current strategic objectives of the organisation. The study used focused interviews (also known as semi-structured interviews) as they allowed for the use of a specific set of questions aimed at why particular processes occur. The semistructured interview questions used in this research were designed (see Patton, 2002) to elicit insights into how the organisation and its members understood the value-creation process and the challenges involved in realising value. Doing so provided a dynamic perspective of valuecreation from ‘inside’ the organisation, as interpreted by the respondents. As a result of these interviews various elements of IC, being human capital and structural capital were identified which, according to the executive management of BOP, allow the delivery of customer value (relational capital). These elements were utilised in the next phase of research as outlined next. In the second phase of research, a sensemaking methodology referred to as ‘pre-hypothesis’ research was utilised (see Snowden, 2006; Dumay and Cuganesan, 2007a). At the heart the ‘pre-hypothesis’ method is what Snowden (2006) refers to as a sense making item (SMI). A SMI is defined as “anything that helps people make sense of the world they live in” (Snowden, 2006). The most common SMI form is that of an anecdote or short fragments of fully formed stories that are seen as part of human discourse and are at the heart of how people transfer knowledge to each other (Czarniawska, 1998).
3
Relating to, involving, or providing an interpretation or explanation of something
11
The use of SMIs is designed around prompting respondents to give narrative responses to non-directive questions. The theory is that when a person is asked a non-directive question that is answered with a narrative from either their point of view or a third-party perspective, is that they will more likely give answers based on their experiences. Allowing these narratives to be told from a third party perspective also allows for more honest answers, especially when the narrative could be embarrassing or negative from the respondents perspective. This is because allowing them to tell the narrative from a third party perspective allows them to distance themselves from the story thus delivering more truthful responses. In the case of BOP 208 narratives were gathered from 41 employees who were selected using a random sampling process. Each of the employees was asked to provide at least five narratives based on open questions about their experiences of work life at BOP. Each of these narratives were indexed using a set of abstract indicators that were developed based on various elements of IC identified in phase one to elicit understanding about IC. Classifying responses in terms of the prevalence of structural and human capital IC components provides an indication of the importance of the various factors. This is represented in Table 2. Table 2 provides both a confirmation and more detail on the IC components that are relevant to the conduct of business activities that impact the customer, as envisaged by BOP employees. But, given the complexities of IC, it was necessary to consider how each of the IC components influenced each other and the overall pattern of interaction. So in addition to investigating the perceived importance of each IC component, the interaction between them was also analysed. The visual map of the interaction pattern of IC at BOP is presented in Table 3. The basis of this map is a pair wise correlation analysis of the ranking scores provided by the employees for each of the IC components (for more detail, refer to Dumay and Cuganesan, 2007b). The table is colour coded to represent the strength of the interactions between the representations of elements of IC. Green denotes very strong interactions; orange denotes a strong interaction and grey denotes little or no inter-action. To simplify the analysis, the relational capital components considered to most identify with customer and shareholder value were selected as “value dimensions”, and the relationships between the various IC components and these dimensions have been represented in Table 4. This analysis provided insights into how IC works within BOP and the complexities of the IC-value creation nexus. Overall, a relationship between elements of Human Capital, Structural Capital and improvements in Relational Capital at AusFinCo is indicated from the perspective of BOP employees. The analysis indicated that people in BOP believe there is a relationship between a work environment that is seen to be attractive and engaging, develops competencies and offers employees a career that is both enabled by and allows the application of information and communication technology and the flow of knowledge. It is the view of BOP employees that the interaction of these intangible resources creates value for AusFinCo and its customers. This study was based on an interpretative approach of utilising organisational narrative to address contemporary calls in the IC literature for empirical investigations of the complex inter-relationships within IC and between IC and value creation in organisations (see Mouritsen, 2006). As such, the study makes two main contributions to the literature on IC. First, it provided empirically based understandings of the tangible and intangible assets of the
12
firm as a highly inter-dependent bundle of resources (Marr et al., 2004) and explanations of how IC resources ‘entangle’ and act productively (Mouritsen, 2004). Specifically, it highlighted the fluid and networked nature of IC, comprising complex inter-relationships between various elements and value (as presented in Table 3 and Table 4 for BOP). Thus, it provides some answers to the ‘big questions’ of “How does IC work in firms?”, “What is IC composed of?”, and “How is IC related to value?” (Mouritsen, 2006). Second, the findings have implications for the practices of measuring and managing IC. A number of models have been proposed that claim to explicate the nature of IC interrelationships and value creation. One such model is the IC accounting system proposed by Mouritsen et al (2001a) that has since been both empirically illustrated and incorporated into international guidelines for the development of IC statements (Mouritsen et al., 2003). Measurement-focused models have also been advanced as a means of focusing on IC and value creation. These include the Value-Creation Index (Baum et al., 2000) and the Value Creation Scoreboard (Lev, 2001), both of which identify a set of non-financial measures or drivers that are statistically associated with indicators of value such as share prices. Competing with these measurement models are a number of visualisation approaches. These include strategy maps (Kaplan and Norton, 2004), value creation maps (Marr et al., 2004) and IC-navigators (Fernstrom et al., 2004). While the above models and frameworks represent important advances within the IC discipline, they are silent on the issue of the problematic nature of utilising IC to create value. IC inter-relationships and their consequences for value creation are unstable and precarious, being contingent upon the manner of their deployment and use within organisational processes. Thus, managing IC based on insufficient ‘measurement’, representations and understandings of how IC is enacted to create value can have adverse effects for organisations, giving rise to intellectual liabilities (Caddy, 2000), orphan knowledge (Caddy, 2001; Caddy et al., 2001) or value dilution (Cuganesan, 2005). A principal contention of this third case study is that in revealing the complex and fluid nature of IC and value-creation, one needs to consider how IC is deployed and utilised in valuecreating activities. To this end, ‘measures’ of IC such as those provided in Table 3 and Table 4 for BOP provide support. While these might not be conventional ‘key performance indicators’ or performance measures as normally understood, they represent the relationships and importance of IC elements in organisational value creation processes. Furthermore, if repeated over time, the ‘numbers’ (correlation coefficients) will change as managerial interventions occur, environmental change takes place and as we observe changes in what IC is and how it works to effect value creation. Single and double-loop learning could thus occur in much the same way as is claimed by popular measurement frameworks such as the Balanced Scorecard (Kaplan and Norton, 2004). As such, it is proposed that the representations of IC as developed in the case and presented in Table 3 and Table 4 are a new means of ‘measuring’ IC within organisations. Thus, the utilisation of narrative as the foundation of these IC measurements establishes narrative as a rich source of data that helps make sense of IC and value creation in complex organisational environments in order to enable change. CONCLUSION As stated in the introduction the purpose of this paper was to present empirical material that showed how the utility of narrative in the measurement, management and reporting of IC went beyond just providing a reason for an organisation’s foray into IC practice. The three cases summarised in this paper do this in a number of ways and is discussed below.
13
The first two cases, PARTSCO and Lands, offer a structuralist approach to understanding the impacts of IC practice as exemplified in the organisations use of narrative. The analysis of PARTSCO’s IC narrative over time exemplifies not only the reasons for the management of IC, rather the narrative also becomes an artefact by which changes in an organisations operating environment and the relevant managerial responses can be assessed. This is seen to have wider implications from a managerial perspective as these artefacts capture the structure of IC as viewed from within the organisation. It shows that the impacts of IC can be examined through the story of IC rather than tracking changes in a series of IC indicators as is advocated by the proponents of ‘numerical’ approaches. This allows for the explication of not only the reasons for managing IC but extends to what Llewellyn (1999) identified as identifying the strategic arguments used by PARTSCO in response to its operating environment. This highlights that the management of IC is not done in isolation by trying to drive improvements in a series of abstract and relatively unchanging metrics; rather it highlights the need for organisations to continually change their IC strategy according to their environment. This is seen to be more of a realistic assessment of how IC works in organisations as the structural view of organisations reinforces that organisations are constantly changing as they reflect upon their assessment of past management actions, especially, as in the case of PARTSCO, if the consequences of those actions are not seen as having the desired strategic results. In the case of Lands, taking a structuralist approach to analysing the narrative disclosure of IC again moved beyond attempting to quantify or identify the wealth created by IC, and thus account for IC. By investigating the narrative disclosure of IC, initially in the form of the IC statement as a supplement to the annual report, it was shown how at Lands the use of narrative became routinized in the activities of management. This routinization is seen to be an essential indicator of the impact of IC in that it become embedded in an organisation (Giddens, 1984). Thus, narrative was no longer used to only provide understanding of the IC measures and the reasoning behind the use of IC, but to provide a mechanism that engendered further management action and subsequent organisational change. This realisation that narrative can become an enabler of IC management activity instead of just offering explanation of IC is an important transition in thinking about narrative because it further highlights the utility of narrative, not only from the perspective of IC, but also from the perspective of management in general. Additionally, it also questions the usefulness of what we identify as ‘reified’ accounting frameworks to measure, manage and report on IC, as these seem to not have the same power to change organisations as has been discovered with narrative. Thus narrative extends beyond the ‘raison d’être’ and becomes the ‘modus operandi’, shifting from trying to account for IC to enabling it. In the last case the examination of the utilisation of narrative at AusFinCo from an interpretive approach reinforces that the utility of narrative in investigating IC extends beyond offering reason. In this case, narrative is the data source rather than the outcome of the reflective monitoring and resultant communicative discourse about IC management practices. We see this as having important relevance to the future of research into the understanding of how IC works and impacts organisations. This is because there has been a longstanding desire by both practitioners and academics into understanding the complex nature of IC and how IC interacts to create value (Cuganesan, 2005). If such answers were known, then the take-up of IC management practices may well advance beyond what has been seen by some as slow progress. The research methods used in this case to identify the interaction between elements of IC and the perceived impact on value creation go some way towards making sense of the complex environment in which IC operates. While it is not advocated that what is presented in
14
this case is the ‘answer’, it does however exemplify what can be potentially done by changing the way that narrative is utilised in IC research. To finalise this paper we offer the view that the utilisation of narrative in future IC research can help extend the understanding of IC and its impact on organisations beyond the scope of ‘accounting’. In the cases presented in this paper, narrative is seen to offer rich accounts of IC in a way that is not possible with numbers alone. Additionally, the use of narrative in research allows us to view inside the organisation and to see human actors in action and to better understand their perceptions based on the communicative interactions that the resultant narrative artefacts provide. This highlights Mouritsen’s (2006) view that what is needed are more examples of research that examine IC in action, rather than attempting to develop additional all-encompassing IC frameworks.
15
Table 1: PartscoData Collection 2004-2006
Sources Management presentations, informal interviews during site visits, 2004 and 2006 Statement of Intangible Capital 2002, 2005
Represented by Internal IC Documents, observations, unstructured dialogue, field notes IC measurements, accompanying narrative
16
Table 2: Ranking of IC components IC Component Frequency of Self-Indexing Relational Capital Creates value for AusFinCo 187 Beating the competition 148 Creates value for customer 146 Requires a knowledge worker 145 Positive customer experience 140 Technology helping customers 117 Requires a process worker 109 Sharing knowledge externally 98 I can see the customer 94 Structural Capital Effective lines of communication 159 Technology supports processes 135 People helping customers 131 Easy to use technology 126 Technology supports customers 117 Performance is product based 107 Innovative products 99 Product focussed 87 Human Capital An attractive place to work 172 Trained and competent staff 159 Learning from others 146 The work is engaging 145 Long term career 134 Set in their ways 108 The new generation 92 Looking to retire 75
17
Table 3: Map of inter-relationships of IC
IC Elements Positive customer experience Relational Capital Technology helping customers Requires a knowledge worker Sharing knowledge externally Structural Capital Effective lines of communication Technology supports customers Technology supports processes Performance is product based Human Capital
Trained and competent staff
Creates value for AusFinCo
Creates value for customer
Requires a process worker
An attractive place to work
People helping customers
Beating the competition
Easy to use technology
IC Elements
I can see the customer
The work is engaging
Learning from others
Product focussed
Long term career
Set in their ways
Positive customer experience Creates value for AusFinCo Relational Capital I can see the customer Sharing knowledge externally Requires a knowledge worker Beating the competition Creates value for customer Requires a process worker Technology helping customers Product focussed Structural Capital Innovative products Performance is product based Easy to use technology People helping customers Effective lines of communication Technology supports customers Technology supports processes The work is engaging Trained and competent staff Human Capital Learning from others Long term career Set in their ways An attractive place to work The new generation Looking to retire
Looking to retire
Abstract indicators
The new generation
Innovative products
18
Table 4: Value dimensions and inter-actions with IC components.
IC Elements Value Dimension IC Components Creates value for customer Creates value for AusFinCo Beating the competition Positive customer experience
Positive customer experience Creates value for AusFinCo Relational Capital Structural Capital Human Capital I can see the customer Sharing knowledge externally Requires a knowledge worker Beating the competition Creates value for customer Requires a process worker Technology helping customers Product focussed Innovative products Performance is product based Easy to use technology People helping customers Effective lines of communication Technology supports customers Technology supports processes The work is engaging Trained and competent staff Learning from others Long term career Set in their ways An attractive place to work The new generation Looking to retire
19
Figure 1: Giddens' 'Structuration' Theory Model
Source: Giddens (1984, p. 29)
Figure 2: Structuration, Agency and Narrative
Adapted from Macintosh and Scapens (1990, p. 459)
20
REFERENCES
21
doc_201875700.doc